Geography of Economic Development

A review of:
Acemoglu, Daron. “Root Causes: A Historical Approach to Assessing the Role of Institutions in Economic Development,” Finance and Development, June 2003, pp. 27-30.

What lessons have we learned about the geography of economic development?

Daron Acemoglu believes that while geography and economic development are correlated, “correlation does not prove causation” (Acemoglu, paragraph 5). Instead Acemoglu argues that the institution hypothesis has more weight. He says that good institutions encourage economic growth. Good institutions have three characteristics: enforcement of property rights, constraints on elites, and equal economic opportunity. [For the sake of argument, I would question whether the US can still answer all three in the affirmative. It seems that in the past twenty years there has been less and less constraint on economic and political elites.]

In the second sentence, Acemoglu sets up with the fact that the average Sub-Saharan per capita income is only 1/20th of the US. What he never addresses is the flip side: the cost of living is drastically lower in Sub-Saharan Africa as well. Yes, income and economic development is a problem, but per capita income isn’t as perfect an indicator as Acemoglu suggests.

As I read his piece, it seemed to me that Acemoglu was making a case for Anglo-superiority but masking it as institutional superiority. In paragraph 9, the countries that are held up on a pedestal are all Anglo: “Australia, Canada, NZ, and the US.” I think Acemoglu makes a much better point when he addresses the fact that these were also the least developed of the colonized countries, so they were thus the most/easiest to Europeanize. However, when one lauds the Anglo civilization, I think it should be counterweighted by the acknowledgement that it is the Anglo civilization that has given the world biggest problems as well: Northern Ireland, Israel-Palestine, India-Pakistan, South Africa, Cyprus, New Zealand-Maori…even Afghanistan and Iraq were once British protectorates. It was the British who fostered division between Shiites and Sunnis in Iraq in the 50s to maintain Iraq’s dependency on the British.

Instead of a geographic hypothesis or an institutional hypothesis, maybe it’s more a case of slow growth v fast growth. In the Anglo-world that Acemoglu praises, there was very slow growth (England was a backwater until the 1600s whereas Spain and France were the historical powers; The American colonies were the last settled, poorest in metals/gems, and grew slowest; etc). Conversely, is rapidly growing countries the institutions can’t keep up with the economic growth… we saw this most recently in Russia and parts of Eastern Europe where there was economic growth, but the poor institutions have left the countries open to corruption, human trafficking, drug trafficking, etc).

Sadly, I agree with Acemoglu’s 17th paragraph in which he says that institutions can’t be imposed against the elites… Peter the Great learned this, Franz Joseph of A-H learned this and, closer to home, supporters of Aristide would say this too, but detractors would say he wasn’t interested in institutional reform. The only other aspect which I felt was missing was the Lord-Actonish perspective: that even when change is attempted that the catalyst can be consumed like Porfirio Diaz in Mexico. He originally sought institutional change, but gave up and gave into authoritarianism. The “power-corrupts” idea could also be applied to US policy toward Latin America. Each American president proclaims his willingness to encourage institutional reform and democracy in LA, but when the elections go against US policy, Washington chooses power over institutional reform (Allende in Chile, Jacobo Arbenz Guzmán in Guatamala). Its one thing to have disagreements of political opinion (such as the US and Evo Morales in Bolivia and Lula da Silva in Brazil), but assisting in the assasination of two democratically elected leaders will forever hurt the US in Latin American eyes. Ever Latin I know views the US as a hypocrit. Even my friends in Maracaibo who make plenty of money working with the US laugh at the idea of American spreading democracy. My point is this: how can you debate geography versus institutions, when the US actively intervenes in these countries in its own interests… we’ll never know which it is. [Acemonglu attempts to solve this by using only the colonial period, but any experiment needs to be able to be retried and achieve the same results; in addition its rather dated material if we’re going to use 500 year old data as the basis for a modern theory]

In conclusion, I’m reminded of K2’s posts on the difference between East Asia and Latin American and economic growth. K2 stated that “the lessons from the economic rise in East Asia and fall in South America is that the role of government is essential element to facilitate development of economy. East Asian states achieved great success with government-led policy while South American economy failed because they did not take active policy run by government.” I guess that in light of reading Acemonglu and thinking more about the subject, I would argue that part of the equation is less interference in East Asia by the US. Yes, the US has tampered in much of Asia, but the US has not actively participated in the internal dynamics of the powerhouses of East Asia (India, Indonesia, China, South Korea). While we’ve tried to influence these countries we have not assassinated their leaders or taken over their economies (as we did with United Fruit for example in Latin America). K2 is obviously more of an expert than I am, but I don’t think any believes the US was behind Park Chung Hee’s death. On the other hand, the US may have been behind his ascention to the presidency in the first place.

I guess what I’m saying is just that because Latine America is completely within the US sphere of influence, it is more vulnerable to US policy, direct or indirect. While Asia is affected by US policy it is a lighter touch because its reaching over a greater distance.

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